*Have you ever heard the expression, “When the White community catches a cold, the Black community gets pneumonia?” It’s commonly said and repeated in the Black communities and is no exaggeration. The decades of discrimination they experienced can explain it all.
This colloquialism equally applies to Black-owned companies. Despite how many years have passed, systemic racism is still evident in their community, and now it’s also affecting their businesses, putting them at a disadvantage in lending and other business practices.
In this article, we’ll discuss the continued discrimination and systemic racism toward Black entrepreneurs and Black-owned businesses, leaving a profound impact on their ability to thrive economically.
What’s Discrimination?
Simply put, discrimination is the unfair treatment people do towards others based on their unique characteristics, typically race, gender, sexual orientation, or age. It’s very alarming and damaging that it’s considered a public health issue in many countries.
Research explains that perceived discrimination can result in a cascade of stress-related emotional, behavioral, and physical changes. When this happens, it triggers negative emotional responses, such as decreased healthy activities (e.g., sleeplessness and a sedentary lifestyle) and increased behaviors that harm health (e.g., substance use). In the worst-case scenario, it can lead to someone’s death, especially when it’s left unmanaged.
In business, discrimination can occur in many ways. Nowadays, with the increasing laws on it, it’s more commonly found in the form of “microaggressions.” Examples are slights, snubs, and misguided comments from establishments, business partners, coworkers, employers, and lenders.
While they’re more subtle, less obvious day-to-day discrimination, microaggressions can still make people feel that their experiences are invalidated or they don’t belong in a certain situation. Considering this, they’re just as detrimental to one’s optimal well-being as other more overt behaviors of major bias.
What’s Systemic Racism?
Systemic racism is one of the two forms of racism, the discrimination based on one’s race. It emphasizes the involvement of whole systems, including economic, school, health care, political, legal, and criminal justice systems. The other form is structural racism, which focuses on the role of these structures, such as institutional practices, entrenched norms, policies, and laws.
In financing, one good example of systemic racism is the widespread discrimination not only by private but also by public lending practices and policies towards people of color. Specifically, non-White and low-income citizens have always been “redlined.”
Redlining is a discriminatory action of denying services (typically financial) to people living in neighborhoods marked “red” by companies because they were deemed hazardous for lending. Although it’s now illegal, many organizations are still “indirectly” doing it.
Another example is the disproportionate financial services targeted to communities of color. Although traditional and alternative (e.g., online payday advance loans) financing services are available and easily accessible in segregated communities these days, many predatory lenders still charge people of color higher service costs and usurious interest rates.
The Impact of Systemic Racism on Black Entrepreneurship
One of the biggest challenges for Black-owned companies is having access to capital. The Federal Reserve recently reported that Black business owners were denied loans almost twice the rate of White entrepreneurs.
Many traditional financial institutions made the lending process harder for Black companies, especially for Black-owned small and midsize enterprises (SMEs). They generated underwriting criteria and systems that don’t meet the needs of Black entrepreneurs looking to seed, sustain, and grow their businesses.
The racial funding gap also exists. It has been reported that Black entrepreneurs tend to receive a disproportionately smaller amount of bank loans and venture capital at higher rates than white-owned businesses. In particular, the amount they borrow is around $30,000 less and at a 1.4% higher interest rate than its counterpart.
Another significant concern Black companies face is the prevailing stereotypes, bias, and discrimination that still exist in our societies nowadays. For example, a recent survey reported that 86% of Black business owners said they’re judged more critically. 79% of them also admitted that they experienced racial discrimination from a customer. Many customers consider a Black-owned business unreliable because they still believe the stereotype that Black people are less educated.
These negative preconceived notions don’t only impede their ability to secure funding but also the opportunities to have access to markets, attract and retain customers, and build professional relationships.
Final Thoughts
Black-owned companies are undeniably at a distinct disadvantage in the business landscape. Becoming business owners while being part of communities of color is definitely a hard road to take.
While their fight for equality is far from over, discrimination and systemic racism didn’t stop many Black-owned entrepreneurs and companies from thriving. They work twice as hard to overcome our society’s negative preconceived notions.
Instead of being thought unreliable, they should be applauded and even be trusted for being able to surpass these concerns. Their strength, resilience, and ability to prosper in the face of adversity are a testament to how good their business principles and management are.
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